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Contract of Partnership
DEFINITION
By the contract of partnership two or more persons
bind themselves to contribute money, property, or
industry to a common fund, with the intention of
dividing the profits among themselves.
Two or more persons may also form a partnership for
the exercise of a profession. [Article 1767]
Article 1767 defines partnership from the viewpoint of
a contract. From the contract arises the partnership
relation. As a form of business organization,
partnership falls between two extremes – single
proprietorship and corporation. [De Leon, Comments
and Cases on Partnership, Agency and Trusts (2010),
hereinafter referred to as "De Leon (2010)"]
ELEMENTS
There is a contract of partnership when:
(1) There is a meeting of the minds;
(2) To form a common fund;
(3) With intention that profits and losses will be
divided among the contracting parties.
ESSENTIAL FEATURES
A partnership contract has the following essential
features:
(1) There must be a valid contract.
(2) The parties must have legal capacity.
(3) There must be a mutual contribution of money,
property, or industry to a common fund.
(4) The object must be lawful.
(5) The primary purpose must be to obtain profits
and to divide the same among the parties.
(6) The partnership has a juridical personality
separate from individual partners [Article 1768].
As such, "Any immovable property or an interest
therein may be acquired in the partnership name.
Title so acquired can be conveyed only in the
partnership name." [Article 1774]
EFFECT OF UNLAWFUL OBJECT
If the partnership has an unlawful object or purpose:
(1) The contract is void ab initio. [Article 1409(1)]
(2) Once dissolved by judicial decree:
(a) The profits shall be confiscated by favor of
the State;
(b) The instruments or tools and proceeds of
the crime shall also be forfeited in favor of the
State. [Article 1770]
(c) The contributions of partners shall not be
confiscated unless they are instruments or tools
of the crime. [De Leon (2010)]
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Note: A partnership is dissolved by operation of law
(even without judicial decree) when the business
becomes unlawful.
ASSOCIATIONS WITHOUT LEGAL PERSONALITY
Associations and societies with the following
characteristics has no legal personality and is
governed by the provisions of co-ownership:
(1) The articles are kept secret among the members;
and
(2) Any one of the members may contract in his own
name with third persons. [Article 1775]
It may, however, be sued by third persons under the
common name it uses. [Section 15, Rule 3, Rules of
Court]
CHARACTERISTICS
The contract of partnership is:
(1) Consensual, because it is perfected by mere
consent.
(2) Nominate, because it has a specific name.
(3) Bilateral or multilateral, because it is entered into
between two or more persons.
(4) Principal, because its existence does not depend
on another contract.
(5) Onerous, because money, property or industry are
contributed by the parties.
(6) Preparatory, because it is entered into to carry out
a business or specific venture.
(7) Commutative, because the undertaking of each is
considered as equivalent of that of the others.
PARTIES TO THE CONTRACT
General rule: Any person capacitated to contract may
enter into a contract of partnership.
As such, the following persons cannot enter into a
contract of partnership:
(1) Those suffering from civil interdiction;
(2) Minors;
(3) Insane or demented persons;
(4) Deaf-mutes who do not know how to write;
(5) Incompetents who are under guardianship.
Exceptions: The capacity of the following persons to
enter into a contract of partnership, though
capacitated to contract generally, are limited:
(1) Those who are prohibited from giving each other
any donation or advantage cannot enter into a
universal partnership. [Article 1782]
(2) A corporation cannot enter into a partnership in
the absence of express authorization by statute or
charter.
Ratio: Otherwise, as a result of the mutual agency
between partners, a corporation would be bound by
the acts of persons other than its duly appointed or
authorized officers or agents. This is inconsistent
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with the policy of the law that a corporation should
manage its own affairs.
Also, the arrangement would allow corporate
property to be subject to risks not contemplated by
the stockholders when they originally invested.
[Mendiola v. CA (2006)]
Although a corporation cannot enter into a
partnership contract, it may, however, engage in a
joint venture with others [Auerbach vs. Sanitary
Wares Manufacturing Corp. (1989)].
There is no prohibition against a partnership being a
partner in another partnership. [De Leon (2010)]
OBJECT OF THE CONTRACT
OBJECT OF UNIVERSAL PARTNERSHIP
A universal partnership may refer to:
(1) All present property:
(a) The partners contribute all the property
which belongs to them to a common fund,
with the intention of dividing the same
among themselves, as well as the profits they
may acquire therewith. [Article 1778]
(b) The property contributed includes all those
belonging to the partners at the time of the
constitution of the partnership.
(c) A stipulation for the common enjoyment of
any other profits may also be made.
However, the property which the partners
may acquire subsequently by inheritance,
legacy or donation cannot be included in
such stipulation, except the fruits thereof.
[Article 1779]
(2) All the profits:
(a) It comprises all that the partners may acquire
by their industry or work during the existence
of the partnership.
(b) Only the usufruct over the property of the
partners passes to the partnership. [Article
1780]
When the articles of universal partnership
does not specify its nature (all present
property or all the profits), the partnership
will be considered as one only of all the
profits. [Article 1781]
OBJECT OF PARTICULAR PARTNERSHIP
A particular partnership has for its object determinate
things, their use or fruits, or a specific undertaking, or
the exercise of a profession or vocation. [Article 1783]
FORM OF THE CONTRACT
General rule: The contract may be constituted in any
form. [Article 1771]
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Exceptions: (1) Where immovable property or real
rights are contributed:
(a) The contract must appear in a public instrument;
and
(b) Attached to such instrument must be an
inventory, signed by the parties, of the property
contributed. [Articles 1771 and 1773]
(2) Where the capital is at least P3,000, in money or
property:
(a) The contract must appear in a public
instrument; and
(b) It must be recorded in the SEC. Failure to
comply with these requirements, however,
does not affect the liability of the partnership
and the partners to third persons. [Articles
1768 and 1772]
DURATION OF THE CONTRACT
COMMENCEMENT
A partnership begins from the moment of the
execution of the contract, unless it is otherwise
stipulated. [Article 1784]
TERM
As to period, a partnership may either be:
(1) For a fixed term or particular undertaking; or
(2) At will, the formation and dissolution of which
depend on the mutual desire and consent of the
parties. Any one of the partners may, at his sole
pleasure, dictate the dissolution of the
partnership, even in bad faith, subject to liability
for damages. [Ortega v. CA (1995)]
EXTENSION
A partnership term may be extended by:
(1) Express renewal of the agreement; or
(2) Implied renewal, when the requisites concur:
(a) The partnership is for a fixed term or
particular undertaking;
(b) It is continued after the termination of the
fixed term or particular undertaking without
any express agreement.
A continuation of the business by the partners or
such of them as habitually acted therein during the
term, without any settlement or liquidation of the
partnership affairs, is prima facie evidence of a
continuation of the partnership. The effect of such
continuation is that the right and duties of the
partners remain the same as they were at such
termination of the period, but this time, the
partnership is considered to be at will. [Article 1785]
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RULES TO DETERMINE EXISTENCE
When the intent of the parties is clear, it shall
govern. When it does not clearly appear, the
following rules apply:
(1) Persons who are not partners to each other are
not partners as to third persons.
Exception: A person not a partner may be considered
a partner by estoppel.
(2) Co-ownership or co-possession does not of itself
establish a partnership, even when there is
sharing of profits in the use of the property.
(3) Sharing of gross returns does not of itself
establish a partnership, even when the parties
have joint or common interest in any property
from which the returns are derived.
(4) The receipt by a person of a share in the profits of
a business is prima facie evidence that he is a
partner.
Exceptions: No such inference is drawn if the profits
are received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee of rent to a landlord;
(c) As an annuity to a widow or representative of a
deceased partner;
(d) As interest on a loan, though the amount of
payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a
business or other property by installments or
otherwise. [Article 1769]
RELATIONS CREATED
(1) Among the partners themselves.
(2) Between the partners and the partnership.
(3) Between the partnership and third persons with
whom it contracts.
(4) Between the partners and such third persons.
KINDS OF PARTNERSHIP
AS TO LEGALITY OF EXISTENCE
(1) Partnership de jure is one which has complied with
all the requisites for its lawful establishment.
(2) Partnership de facto is one which failed to so
comply.
AS TO OBJECT
(1) Universal partnership:
(a) Of all present property;
(b) Of profits;
(2) Particular partnership.
AS TO DURATION
(1) For a fixed term or particular undertaking;
(2) At will.
AGENCY & PARTNERSHIP BAR OPERATIONS COMMISSION
AS TO LIABILITY OF PARTNERS
(1) General partnership, consisting of general partners
only, who are liable pro rata for partnership
obligations with all their after exhaustion of
partnership assets;
(2) Limited partnership, includes, aside from general
partner/s, limited partners, who are not
personally liable for partnership obligations.
AS TO PUBLICITY
(1) Secret partnership, where the existence of certain
persons as partners is not made known by the
partners;
(2) Open or notorious partnership, the existence of
which is made known to the public by the
partners.
AS TO PURPOSE
(1) Commercial or trading partnership, for transaction
of business;
(2) Professional or non-trading, for exercise of a
profession.
A profession has been defined as "a group of men
pursuing a learned art as a common calling in the
spirit of public service — no less a public service
because it may incidentally be a means of
livelihood." [In the Matter of the Petition for Authority
to Continue Use of Firm name "Sycip, Salazar,
etc."/"Ozaeta, Romulo, etc." (1979)]
A professional partnership is a particular
partnership. [Article 1783]
KINDS OF PARTNERS
(1) Capitalist, whose contribution is money or
property;
(2) Industrial, whose contribution is only his industry;
(3) General, whose liability to third persons extends
to his separate property;
(4) Limited, whose liability to third persons is limited
to his capital contribution;
(5) Managing, designated to manage the affairs or
business of the partnership;
(6) Liquidating, takes charge of the winding up of
partnership affairs;
(7) By estoppel, who is not really a partner but is
liable as such for the protection of innocent third
persons;
(8) Continuing, who continues the business after
dissolution of the partnership by admission of a
new partner, or retirement, death or expulsion of
existing partners.
(9) Surviving, who remains a partner after dissolution
by death of any partner;
(10)Subpartner, who is not a member of the
partnership but contracts with a partner with
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regard to the share of the latter in the DISTINGUISHED FROM OTHER CONTRACTS
partnership; Partnership Joint Venture
(11) Ostensible, who takes active part in the business
of the partnership and is known by the public; Operates with firm name Operates with no firm
(12)Secret, who takes active part in the business, but and legal personality name and legal
is unknown to the third persons as a partner; personality
(13) Silent, who does not take active part in the business, but may be known to be a partner by third persons;
(14)Dormant, who does not take active part in the Generally relates to a Usually limited to a single
business and is not known or held out as a continuing business of transaction
partner; various transactions of a
(15)Original, who has been a partner since the certain king
constitution of the partnership;
(16)Incoming, who is about to be taken as a member Corporations may not Corporations may enter
into an existing partnership; enter into a partnership into joint ventures
(17) Retiring, who is withdrawing from the
partnership. It would seem therefore that under Philippine law, a
joint venture is a form of partnership and should thus
Industrial Partner Capitalist Partner be governed by the laws of partnership. [Auerbach vs.
Sanitary Wares Manufacturing Corp. (1989)]
Form of contribution
Partnership Co-Ownership
Industry Money or property
Generally created by Generally created by law,
Share in profits either express or implied and may exist even
contract without a contract
Just and equitable share According to agreement;
if none, in proportion to Has a separate juridical Has no separate juridical
contribution personality personality

Share in losses Generally, the purpose is The purpose is common

Exempted as to losses as
between partners, but
liable to third persons,
without prejudice to
reimbursement from
capitalist partners
According to agreement; if
none, in proportion to
agreed share in the
profits;
if none, in proportion to
contribution
to obtain profits enjoyment of a thing or
right
Duration has no limitation An agreement to keep a
thing undivided for more
than 10 years is not
allowed

Engaging in business There is mutual agency There is no mutual

between partners representation among co-
Cannot engage in Cannot engage, for his owners
business for himself, own account, in the same
unless the partnership kind of business as that of Death or incapacity of a Death or incapacity of a
expressly permits him to the partnership, unless partner dissolves the co-owner does not
do so; should he do so there is a stipulation to partnership dissolve the co-ownership
without permission, the the contrary; should he do
capitalist partners (as well so, he shall bring to the Partner cannot dispose of Co-owner can dispose of
as industrial partners [De common fund any profits his interest so as to make his share without consent
Leon (2010)]) may (a) accruing to him from his the assignee a partner, of others
exclude him from the firm, transactions and shall without consent of others
or (b) avail themselves of personally bear all the
the benefits obtained in losses [Article 1808]
violation of the Partnership Corporation
prohibition, with right to
damages in either case Has juridical personality separate and distinct from
[Article 1789] its individual members
Can only act through agents

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Partnership Corporation Conjugal

Partnership
Partnership of Gains
Composed of an aggregate of individuals
Has juridical personality Has no juridical
Distributes its profits to those who contributed personality
capital to the business
Commencement date Commencement is on the
Can only be organized where there is a law may be stipulated date of the celebration of
authorizing its organization the marriage, and any
Taxable as a corporation stipulation to the contrary
is void
Created by agreement Created by law (with SEC
approval) Share in profits may be Share in profits is equal
stipulated; otherwise, in
Involves at least 2 persons Except for a corporation proportion to contribution
sole, requires at least 5
incorporators Management shared by Administration belongs to
all partners, unless the spouses jointly, but
Personality commences Personality commences otherwise agreed upon decision of husband
from the moment of from the issuance of prevails in disagreement
execution of the contract certificate of incorporation
Partner can dispose of Spouse cannot dispose of
Can exercise any power Can exercise only powers Interest even without interest during marriage,
authorized by partners granted by law or those consent of others even with consent
incidental to its existence
When management is not Management is vested in
agreed upon, every the board of directors of Partnership Voluntary Association
partner may act for the trustees
partnership Has juridical personality Has no juridical
personality
Partners are generally Stockholders are liable
liable for partnership only to the extent of their Organized for profit Not always organized for
debts shares profit

Partner cannot dispose of Stockholder has the right Capital is contributed Capital is not contributed,
his interest so as to make to transfer his shares although fees are
the assignee a partner, without consent of others collected from members
without consent of others
Partnership is primarily The members are liable
Duration has no limitation The term is 50 years, but liable; the partners are individually for debts
may be extended liable only subsidiarily which they authorized or
ratified
May be dissolved at any May only be dissolved with
time by one or all of the the consent of the state Share in profits may be Share in profits is equal
partners stipulated; otherwise, in
proportion to contribution

Management shared by Administration belongs to

Conjugal all partners, unless the spouses jointly, but
Partnership
Partnership of Gains otherwise agreed upon decision of husband
prevails in disagreement
Created by voluntary Arises in case the spouses,
agreement of 2 or more of opposite sex, agree Partner can dispose of Spouse cannot dispose of
partners of either sex before marriage Interest even without interest during marriage,
consent of others even with consent
Governed by agreement Governed by law

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Rights and obligations
of the partnership
RIGHT TO CONTRIBUTION, IN GENERAL
The mutual contribution to a common fund is the
essence of the contract of partnership [De Leon
(2010)]. As such, the partnership has a right to the
contribution (or partners are obliged to contribute).
The money or property thus contributed, or their use
or fruits, becomes a property of the partnership.
To complement this right of the partnership and as
an incident of its separate and distinct juridical
personality, it is allowed by law to acquire any
immovable property or an interest therein. Title so
acquired can be conveyed only in the partnership
name [Article 1774].
OBLIGATION OF PARTNERS TO THE
PARTNERSHIP
WITH RESPECT TO CONTRIBUTION OF MONEY OR
PROPERTY
With respect to contribution of property, a partner is
obliged to:
(1) To contribute, at the beginning of the partnership
or at the stipulated time, the money, property or
industry which he undertook to contribute;
(2) In case a specific and determinate thing is to be
contributed:
(a) To warrant against eviction in the same
manner as a vendor; and
(b) To deliver to the partnership the fruits of the
property promised to be contributed, from
the time they should have been delivered,
without need of demand [Article 1786];
(3) In case a sum of money is to be contributed, or in
case he took any amount from the partnership
coffers, to indemnify the partnership for:
(a) Interest; and
(b) Damages, from the time he should have
complied with his obligation, or from the time he
converted the amount to his own use, respectively
[Article 1788].
Article 1788 is an exception to the general rule that in
obligations consisting in the payment of a sum of
money, the indemnity for damages consists only in
the payment of interest [Article 2209].
AMOUNT OF CONTRIBUTION
General rule: The partners are obliged to contribute
equal shares to the capital of the partnership.
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Exception: When there is an agreement to the
contrary, the contribution shall follow such
agreement [Article 1790].
DETERMINING VALUE OF CONTRIBUTION IN GOODS
To determine the value when the contribution
consists, in whole or in part, of goods, their appraisal
must be made:
(1) In the manner prescribed in the partnership
contract;
(2) In the absence thereof, by experts chosen by the
partners and according to current prices.
Subsequent changes in the price will be for the
benefit or will be suffered by the partnership [Article
1787].
ADDITIONAL CAPITAL CONTRIBUTION
In case of an imminent loss of the business of the
partnership, any partner who refuses to contribute
an additional share to the capital, except an industrial
partner, to save the venture, shall be obliged to sell
his interest to the other partners, unless there is an
agreement to the contrary [Article 1791].
Requisites:
(1) There is an imminent loss of the business of the
partnership;
(2) The majority of the capitalist partners are of the
opinion that an additional contribution to the
common fund would save the business;
(3) The capitalist partner refuses deliberately (not
because of financial inability) to contribute an
additional share to the capital; and
(4) There is no agreement that even in case of
imminent loss of the business, the partners are not
obliged to contribute.
PROHIBITION AGAINST ENGAGING IN BUSINESS
General rule: A capitalist partner cannot engage for
his own account in any operation which is of the kind
of business in which the partnership is engaged.
Should he do so, he shall bring to the common fund
any profit accruing to him from his transactions,
while personally bearing all the losses.
Exception: The rule does not apply when there is a
stipulation to the contrary [Article 1808].
RISK OF LOSS OF THINGS CONTRIBUTED
In case the contribution consists in the use and fruits
of specific and determinate things, which are not
fungible, the risk of loss shall be borne by the partner
who owns them.
The partnership bears the risk if the things:
(1) Are fungible;
(2) Cannot be kept without deterioration;
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(3) Were contributed to be sold; or
(4) Were brought and appraised in the inventory.
In the last case, the claim is limited to the
appraised value of the things [Article 1795].
REMEDY IN CASE OF NON-COMPLIANCE
A partner is guilty of estafa if he misappropriates
partnership money or property received by him for a
specific purpose of the partnership [Liwanag v. CA
(1997)].
However, mere failure on the part of an industrial
partner to return to the capitalist partner the capital
brought by him into the partnership is not an act
constituting estafa. The action that may be brought
to recover the money is a civil one [US v. Clarin
(1910)].
OBLIGATION OF PARTNERS TO THE
PARTNERSHIP
WITH RESPECT TO CONTRIBUTION OF INDUSTRY
With respect to contribution of industry, a partner is
also obliged to contribute it at the stipulated time.
PROHIBITION AGAINST ENGAGING IN BUSINESS
General rule: An industrial partner cannot engage in
business for himself. Should he do so, the capitalist
partners, as well as industrial partners [De Leon
(2010)], may either:
(1) Exclude him from the firm; or
(2) Avail themselves of the benefit which he may
have obtained.
Exception: He may engage in business for himself
when the partnership expressly permits him to do so.
[Article 1789]
RIGHT TO APPLY PAYMENT TO PARTNERSHIP
CREDIT
General rule: A partner authorized to manage, who
collects a demandable sum owed to him in his own
name from a person who also owes the partnership a
demandable sum, is obliged to apply the sum
collected to both credits pro rata, even if he issued a
receipt for his own credit only.
Requisites:
(1) There exist at least two debts, one where the
collecting partner is creditor, and the other,
where the partnership is the creditor;
(2) Both debts are demandable; and
(3) The partner who collects is authorized to manage
and actually manages the partnership.
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Exceptions:
(1) In case the receipt was issued for the account of
the partnership credit only, however, the sum
shall be applied to the partnership credit alone.
(2) When the debtor declares, pursuant to Article
1252, at the time of making the payment, to which
debt the sum must be applied, it shall be so
applied [Article 1792].
The law, through this rule, safeguards the interests
of the partnership by preventing the possibility of
their being subordinated by the managing partner to
his own interest, by intentionally failing to collect
partnership credits to collect his own, to the
prejudice of the other partners. This possibility does
not exist in case the partner is not authorized to
manage [De Leon (2010)].
RIGHT TO RETURN OF CREDIT RECEIVED
A partner, who is authorized to manage or not, is
obliged to bring to the partnership capital what he
received when:
(1) He has received, in whole or in part, his share of
the partnership credit;
(2) The other partners have not collected their
shares; and
(3) The partnership debtor has become insolvent.
This obligation exists even when he issued a
receipt for his share only. [Article 1793]
Ratio: In this case, the debt becomes a bad debt. It
would be unfair for the partner who already collected
not to share in the loss of the other partners.
RIGHT TO INDEMNITY FOR DAMAGES
Every partner is responsible to the partnership for
damages suffered by it through his fault.
COMPENSATION OF LIABILITY
General rule: The liability for damages cannot be set-
off or compensated by profits or benefits which the
partner may have earned for the partnership by his
industry.
Ratio: The partner has the obligation to secure the
benefits for the partnership. As such, the
requirement for compensation, that the partner be
both a creditor and a debtor of the partnership at the
same time, is not complied with [Article 1278; De Leon
(2010)].
Exception: The court may equitably lessen the
liability if, through his extraordinary efforts in other
activities of the partnership, unusual profits were
realized [Article 1794].
Note, however, that there is still no compensation.
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SUIT FOR DAMAGES
Before a partner may sue another for alleged
fraudulent management and resultant damages,
liquidation must first be effected to determine the
extent of the damage. Without liquidation of
partnership affairs, a partner cannot claim damages
[Soncuya v. De Luna (1939)].
RESPONSIBILITY OF THE PARTNERSHIP TO
PARTNERS
In the absence of any stipulation to the contrary,
every partner is an agent of the partnership for the
purpose of its business. As such, it is responsible to
every partner:
(1) For amounts, and the corresponding interest
from the time the expenses were made, which he
may have disbursed on behalf of the partnership;
(2) For obligations he may have contracted in good
faith in the interest of the partnership business;
and
(3) For risks in consequence of the management of
the partnership. [Article 1796]
Rights and obligations
of partners inter se
RIGHT TO ASSOCIATE ANOTHER IN SHARE
Every partner may associate another person with him
in his share.
The admission of the associate to the partnership,
however, requires the consent of all the other
partners, even if the partner having an associate is a
managing partner [Article 1804].
SUBPARTNERSHIP
The arrangement refers to a contract of
subpartnership, which is a partnership within a
partnership, distinct and separate from the main
partnership [De Leon (2010)]. The associate is
sometimes referred to as a subpartner.
Since admission of the subpartner as a new partner
in the main partnership amounts to a modification of
the original contract, it requires the unanimous
consent of the partners.
RIGHT TO ACCESS PARTNERSHIP BOOKS
The partnership books shall be kept at the place
agreed upon by the partners.
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Without such agreement, they shall be kept at the
principal place of business of the partnership.
Every partner shall, at any reasonable hour, have
access to and may inspect and copy any of them.
[Article 1805]
BASIS OF RIGHT
Since a partner is a co-owner of partnership
properties, which include the books, and has a right
to participate in the management of its affairs, the
books should not be in the exclusive custody or
control of any one partner [De Leon (2010)].
REASONABLE HOUR
"Any reasonable hour" has been interpreted to mean
reasonable hours on business days throughout the
year, not merely during some arbitrary period of a
few days chosen by the managing partner [Pardo v.
Lumber Co., (1925)].
RIGHT TO A FORMAL ACCOUNT
Any partner shall have the right to a formal account
as to partnership affairs:
(1) If he is wrongfully excluded from the partnership
business or possession of its property by his co-
partners;
(2) If the right exists under the terms of any
agreement;
(3) If, without his consent, a partner has derived
profits from any transaction connected with the
formation, conduct, or liquidation of the
partnership or from any use of partnership
property;
(4) Whenever other circumstances render it just and
reasonable [Article 1809].
ACCRUAL OF RIGHT
General rule: The right to a formal account of
partnership affairs accrues only when the
partnership is dissolved. Ample protection is already
provided.
Exceptions: In special and unusual cases under
Article 1809, formal accounting may be demanded
even before dissolution.
PERSON OBLIGED
The obligation to account rests on the managing or
active partner (or, after dissolution, in the liquidating
or surviving partner).
PRESCRIPTION OF ACTION
The right, on the part of the other partners, to
demand an accounting exists while the partnership
exists. The prescriptive period begins to run only
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upon the dissolution when the final accounting is (b) Dissolution by judicial decree [Article 1831].
done [Fue Leung v. IAC (1989)]. (2) A partner's right in such property is not
assignable, except when all the partners assign
NATURE OF ACTION their rights in the same property.
The action for accounting is an action in personam, (3) The right is not subject to attachment or
regardless of the incidental fact that some of the execution, except on claim against the
assets of the partnership are real property [Emnace v. partnership. Also, in case of such attachment, the
CA (2001)]. partners, or any of them, or the representatives of
a deceased partner, cannot claim any right under
PROPERTY RIGHTS OF PARTNERS the homestead or exemption laws;
IN GENERAL (4) The right is also not subject to legal support
The property rights of a partner are: under Article 291 [Article 1811].
(1) Rights in specific partnership property;
(2) Interest in the partnership; and A partner's right in specific property cannot be
(3) Right to participate in the management [Article separately assigned, since it is impossible to
1810]. determine the extent of his beneficial interest in the
property until after the liquidation of partnership
PARTNERSHIP PROPERTY AND PARTNERSHIP CAPITAL affairs.
Capital Property
It is also not subject to support precisely because it is
With constant value Value varies with market a property of the partnership and not of the
conditions individual partners.

Includes only actually Includes the contributions INTEREST IN THE PARTNERSHIP

contributed and promised and property acquired by A partner's interest in the partnership is his share of
capital the partnership the profits and surplus [Article 1812]. This interest is
subject to support and may be assigned.

OWNERSHIP OF CERTAIN PROPERTY RIGHTS OF ASSIGNEE

(1) The ownership of property used by the partnership Assignment by a partner of his whole interest in the
depends on the intention of the parties, which partnership does not, of itself:
may be drawn from an express agreement or (1) Dissolve the partnership; or
their conduct. (2) Entitle the assignee to:
(a) A partner may allow the property to be used (a) Interfere in the management or
by the partnership without transfer of administration of the partnership business or
ownership, contributing only the use or affairs;
enjoyment thereof. (b) Require information or account of
(b) He may also hold title to partnership property, partnership; or
without acquiring ownership thereof [Article (c) Inspect the partnership books.
1819].
(2) Property acquired by a partner with partnership It merely entitles the assignee to:
funds is presumed to be partnership property. (1) Receive the profits to which the assigning partner
(3) The same presumption also arises when the was entitled;
property is indicated in the partnership books as (2) In case of fraud in management, avail himself of
partnership asset. the usual remedies;
(4) Other factors may be considered to determine (3) In case of dissolution:
ownership of the property. (a) Receive his assignor's interest; and
(b) Require an accounting from the date only of
RIGHTS IN SPECIFIC PROPERTY the last account agreed to by all the partners
The partners are co-owners of specific partnership [Article 1813].
property. As such:
(1) A partner has an equal right with his partners to CHARGING OF PARTNERSHIP INTEREST BY PERSONAL
possess such property for partnership purposes. CREDITOR
For other purposes, the consent of his partners is OF PARTNERS
necessary. If the partner is excluded, he may ask Partnership creditors are preferred over the personal
for: creditors of the partners as regards partnership
(a) Formal accounting [Article 1809]; or property [Article 1827].

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UP COLLEGE OF LAW AGENCY & PARTNERSHIP
However, on due application by any judgment
creditor of a partner, a competent court may:
(1) Charge the interest of the partner for the
satisfaction of the judgment debt;
(2) Appoint a receiver of the share of the profits and
of any other money due or to fall due to the
partner; and
(3) Make all other orders, directions, accounts and
inquiries, which the debtor partner might have
made, or which the circumstances may require.
The interest charged may be redeemed before
foreclosure or, in case of sale directed by the court,
may be purchased without causing dissolution:
(1) With separate property, by one or more of the
partners; or
(2) With partnership property, by one or more of the
partners, will consent of all, except the debtor
partner.
The partner debtor is not deprived of his right under
exemption laws. [Article 1814]
CHARGING ORDER
A charging order subjects the interest in the
partnership of the debtor partner with the payment
of an unsatisfied amount of a judgment debt against
him, with the least interference with the partnership
business and the rights of the partners. By virtue of
the order, any amount or portion thereof which the
partnership would otherwise pay to the debtor
partner is instead given to the judgment creditor [De
Leon (2010)].
RIGHT TO PROFITS AND OBLIGATION FOR
LOSSES
RULES FOR DISTRIBUTION OF PROFITS AND LOSSES
The distribution of profits and losses shall be in
accordance with the following rules
(1) They shall be distributed in conformity with the
agreement.
(2) If only the share in profits has been stipulated, the
share in the losses shall be in the same
proportion.
(3) In the absence of any stipulation:
(a) The share in the profits of the capitalist
partners shall be in proportion to their
contributions.
(b) The losses shall be borne by the capitalist
partners, also in proportion to the
contributions;
(c) The share of the industrial partners in the
profits is that share as may be just and
equitable. If he also contributed capital, he
will receive a share of the profits in proportion
to his contribution; and
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(d) The industrial partner, who did not contribute
capital, is not liable for losses [Article 1797].
DESIGNATION OF SHARE BY THIRD PERSONS
The designation of the share of each one in the
profits and losses can be delegated to a third person,
in which case, it cannot be impugned:
(a) Unless it is manifestly inequitable;
(b) The partner impugning it has begun to execute
the designation; or
(c) The partner has not impugned it within 3 months
from the time he had knowledge thereof.
The designation cannot be delegated to one of the
partners [Article 1798].
EXCLUSION OF PARTNER FROM SHARE
A stipulation excluding one or more partners from
any share in the profits or losses is void [Article 1799].
With reference to the industrial partner, since the law
itself excludes him from losses, a stipulation
exempting him from the losses is naturally valid
since if the partnership fails to realize profits, he can
no longer withdraw his work or labor. He cannot but
share in the loss.
OBLIGATION TO RENDER INFORMATION
Partners shall render on demand true and full
information of all things affecting the partnership to
any partner or the legal representative of any
deceased partner or of any partner under legal
disability [Article 1806].
BASIS OF OBLIGATION
This obligation arises from the mutual trust and
confidence among partners. Thus, there must be no
concealment between them in all matters affecting
the partnership [De Leon (2010].
OBLIGATION TO ACCOUNT AND ACT AS TRUSTEE
Every partner must account to the partnership for
any benefit, and hold as a trustee for it any profits
derived by him without the consent of the other
partners from any transaction connected with the
formation, conduct, or liquidation of the partnership
or from any use by him of its property [Article 1807].
BASIS OF OBLIGATION
This obligation also arises from the fiduciary nature
of the partnership relation, and operates to prevent a
partner from making a secret profit out of the
partnership. Note that the obligation extends from
the formation to the liquidation of the partnership.
UP COLLEGE OF LAW AGENCY & PARTNERSHIP
Operation of the Partnership
FIRM NAME
Every partnership shall operate under a firm name,
which may or may not include the name of one or
more of the partners.
Those who, not being members of the partnership,
include their names in the firm name, shall be
subject to the liability of a partner [Article 1815].
RIGHT TO CHOOSE FIRM NAME
General rule: The partners may adopt any firm name
desired.
Exceptions:
(1) They cannot use a name that is "identical or
deceptively or confusingly similar to an existing
[partnership] or corporation or to any other name
already protected by law or is patently deceptive,
confusing or contrary to existing laws" [Section 18,
Corporation Code].
(2) Use of names of deceased partner in law firms is
"permissible provided that the firm indicates in all
its communications that said partner is
deceased" [Rule 3.02, Code of Professional
Responsibility].
MANAGEMENT OF THE PARTNERSHIP
Management of the partnership is primarily
governed by the agreement of the partners in the
articles of partnership. It may be managed by:
(1) All the partners; or
(2) A number of partners appointed as managers,
which may be appointed:
(a) In the articles of partnership; or
(b) After constitution of the partnership.
POWERS OF A MANAGING PARTNER
General rule: The partner designated as manager in
the articles may execute all acts of administration
despite opposition by the other partners.
Exception: He cannot do so when he acts in bad faith.
REVOCATION OF POWER OF MANAGING PARTNER
The powers of the managing partner may be
revoked:
(1) If appointed in the articles of partnership, when:
(a) There is just or lawful cause for revocation;
and
(b) The partners representing the controlling
interest revoke such power.
(2) If appointed after the constitution of the
partnership, at any time and for any cause [Article
1800].
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MANAGEMENT BY TWO OR MORE PARTNERS
When there are two or more managing partners
appointed, without specification of their duties or
without a stipulation on how each one will act:
(1) Each one may separately execute all acts of
administration.
(2) If any of them opposes the acts of the others, the
decision of the majority prevails.
(3) In case of a tie, the partners owning the
controlling interest will decide [Article 1801].
Requisites:
(1) Two or more partners have been appointed as
managers;
(2) There is no specification of their respective duties;
and
(3) There is no stipulation that one of them shall not
act without the consent of all the others.
STIPULATION ON UNANIMITY OF MANAGING PARTNERS
In case there is a stipulation that none of the
managing partners shall act without the consent of
others, the concurrence of all is necessary for the
validity of the acts.
The absence or disability of one cannot be alleged,
unless there is imminent danger of grave or
irreparable injury to the partnership. [Article 1802]
MANAGEMENT WHEN MANNER NOT AGREED UPON
When there is no agreement as to the manner of
management, the following rules apply:
(1) All the partners are considered agents (mutual
agency). Whatever any one does alone binds the
partnership, unless there is a timely opposition to
the act, under Article 1801.
(2) Any important alteration in the immovable
property of the partnership, even if useful to the
partnership, requires unanimity. If the alteration
is necessary for the preservation of the property,
however, consent of the others is not required [De
Leon (2010)].
If the refusal is manifestly prejudicial to the
partnership, court intervention may be sought [Article
1803].
INSTANCES OF MUTUAL AGENCY
(1) Partners can dispose of partnership property even
when in partnership name [Article 1819].
(2) An admission or representation made by any
partner concerning partnership affairs is evidence
against the partnership [Article 1820].
(3) Notice to any partner of any matter relating to
partnership affairs is notice to the partnership
[Article 1821].
UP COLLEGE OF LAW AGENCY & PARTNERSHIP
(4) Wrongful act or omission of any partner acting for
partnership affairs makes the partnership liable
[Article 1822].
(5) Partnership is bound to make good losses for
wrongful acts or misapplications of partners
[Article 1823].
Obligations of partnership/
partners to third persons
LIABILITY OF PARTNERS FOR PARTNERSHIP
CONTRACTS
The partnership is primarily liable for contracts
entered into in its name and for its account, under its
signature and by a person authorized to act for it.
Upon exhaustion of its assets, all partners are liable
pro rata with all their property.
Any partner may enter into a separate obligation to
perform a partnership contract [Article 1816].
NATURE OF INDIVIDUAL LIABILITY
The pro-rating should be understood to mean
equally or jointly, not proportionally [De Leon (2010),
citing Article 1839(4); note, however, that this
conclusion does not find textual support in Article
1816].
The fact that a partner has left the country and the
payment of his share of the liability cannot be
enforced [Co-Pitco v. Yulo (1907)] or his liability is
condoned by the creditor [Island Sales v. United
Pioneers (1975)] cannot increase the liability of the
other partners.
The liability is subsidiary or secondary. It only arises
upon exhaustion of partnership assets. However,
they may be joined as party defendants in the action
against the partnership, subject to their right to prior
exhaustion of partnership assets [Cia. Maritima v.
Muñoz (1907)].
General rule: The partners are liable pro-rata and
subsidiarily, with all their property.
Exceptions:
(1) A third person who transacted with the
partnership can hold the partners solidarily liable
for the whole obligation if the case falls under
Articles 1822 or 1823 [Muñasque v. CA (1985)].
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(2) A person admitted as a partner into an existing
partnership is liable for all the obligations of the
partnership arising before his admission, except
that his liability shall be satisfied only out of
partnership property, unless there is a stipulation
to the contrary.
LIABILITY OF INDUSTRIAL PARTNER
An industrial partner, who is not liable for losses, is
not exempt from this liability. However, he can
recover the amount he has paid from the capitalist
partners, unless there is a stipulation to the contrary.
[Cia. Maritima v. Muñoz (1907)].
STIPULATION AGAINST INDIVIDUAL LIABILITY
Any stipulation against this liability is void and does
not affect third persons. The stipulation, however, is
valid only as among the partners [Article 1817].
LIABILITY OF PARTNERS FOR PARTNERSHIP
CONTRACTS
ACTS APPARENTLY FOR THE CARRYING ON OF USUAL
BUSINESS
General rule: Every partner is an agent of the
partnership for the purpose of its business and any
act of a partner which is apparently for the carrying
on of the usual business of the partnership binds the
latter, including the execution of any instrument in
the partnership name [1st par., Article 1818].
Exception: The partnership is not bound when:
(1) The partner has in fact no authority to act; AND
(2) The person with whom he deals has knowledge of
such fact.
ACTS NOT APPARENTLY FOR CARRYING ON OF THE USUAL
BUSINESS
General rule: Acts of a partner which is not apparently
for carrying on of the usual business does not bind
the partnership.
Exception: The partnership is bound if the other
partners authorized him to do the act.
ACTS OF STRICT DOMINION
General rule: One or some of the partners have no
authority to do the following acts of strict dominion:
(a) Assign the partnership property in trust for
creditors or on the assignee's promise to pay the
debts of the partnership;
(b) Dispose of the goodwill of the business;
(c) Do any other act which makes it impossible to
carry on the ordinary business of the partnership;
(d) Confess a judgment;
(e) Enter into a compromise concerning a
partnership claim or liability;
UP COLLEGE OF LAW
(f) Submit a partnership claim or liability to
arbitration;
(g) Renounce a claim of the partnership.
Exception: They may do so if:
(1) Authorized by all the partners; OR
(2) The other partners have abandoned the business.
ACTS IN CONTRAVENTION OF RESTRICTION
Any act of a partner in contravention of a restriction
on authority does not bind the partnership to
persons having knowledge of the restriction [Article
1818].
CONVEYANCE OF REAL PROPERTY OF
PARTNERSHIP
TITLE IN THE PARTNERSHIP NAME
Any partner may convey the property in the name of
the partnership.
The partnership can recover it, except when:
(1) The act of the partner binds the partnership
under 1st par., Article 1818 (i.e., for the carrying on of
the usual business of the partnership); or
(2) If not so authorized, the property has been
conveyed by the grantee, or a person claiming under
him, to a holder for value and without knowledge
that the partner exceeded his authority.
TITLE IN THE PARTNERSHIP NAME
A partner, authorized to act under 1st par., Article
1818, may convey, in his own name, the equitable
interest of the partnership.
TITLE IN THE NAME OF ONE OR MORE (NOT ALL) OF THE
PARTNERS
AND THE RECORD DOES NOT DISCLOSE THE RIGHT
OF THE PARTNERSHIP
The partners having title may convey title.
The partnership may recover it if the act does not
bind it under 1st par., Article 1818, unless the
purchaser or his assignee is:
(1) A holder for value; AND
(2) Without knowledge that the act exceeded
authority.
TITLE IN THE NAME OF ONE OR MORE OR ALL THE
PARTNERS,
OR IN A THIRD PERSON IN TRUST FOR THE PARTNERSHIP
A partner may convey equitable title in the
partnership name or in his own name, when the act
is authorized under 1st par., Article 1818.
TITLE IN THE NAMES OF ALL THE PARTNERS
The conveyance must be executed by all of them to
pass all their rights in the property [Article 1819].
AGENCY & PARTNERSHIP BAR OPERATIONS COMMISSION
LIABILITY OF PARTNERSHIP FOR ADMISSION BY
PARTNER
An admission or representation by any partner
concerning partnership affairs within the scope of his
authority may be used as evidence against the
partnership [Article 1820].
LIABILITY OF PARTNERSHIP FOR WRONGFUL
ACTS OF PARTNER
The partnership is solidarily liable with the partner
who causes loss or injury, or incurs any penalty
through any wrongful act or omission:
(1) In the ordinary course of the business of the
partnership; or
(2) Not in such ordinary course of business, but with
the authority of his co-partners [Article 1822].
LIABILITY OF THE PARTNERSHIP FOR
MISAPPLICATION OF MONEY
OR PROPERTY RECEIVED
The partnership is liable for losses suffered by a third
person whose money or property was:
(1) Received by a partner, acting within the scope of
his apparent authority, who also misapplied it; or
(2) Received by the partnership, in the course of its
business, but is misapplied by any partner while it
is in the custody of the partnership [Article 1823].
LIABILITY OF OTHER PARTNERS
FOR WRONGFUL ACTS OR MISAPPLICATION
All partners are solidarily liable with the partnership
for its liabilities under Articles 1822 and 1823 [Article
1824].
This is without prejudice to the guilty partner being
liable to the other partners. However, as far as third
persons are concerned, the partnership is
answerable.
LIABILITY IN CASE OF PARTNERSHIP BY
ESTOPPEL
PARTNER BY ESTOPPEL
A person, not a partner, may become a partner by
estoppel, and be liable as a partner, when, by words,
spoken or written, or conduct, he:
(1) Directly represents himself to anyone as a partner
in an existing or non-existing partnership; or
(2) Indirectly represents himself by consenting to
another representing him as such partner. [Article
1825]
LIABILITY OF PARTNER BY ESTOPPEL
A partner by estoppel is liable:
(1) To any person who extended credit to the
partnership, actual or apparent, relying on his
representation; and
PAGE 248
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(2) In case the representation was made publicly, to
any person, who extended such credit, whether or
not the communication to said creditor was made
with the knowledge of the partner.
NATURE OF LIABILITY
He is liable in the following manner:
(1) When there is an existing partnership and all the
partners consented to the representation, a
partnership liability results, and the partner by
estoppel is liable as though he were a partner;
(2) When there is an existing partnership and not all
the partners consented, or when there is no
existing partnership and all those represented as
partners consented to the representation, he is
liable jointly and pro rata with those who
consented to the representation;
(3) When there is an existing partnership but none of
the partners consented, or when there is no
existing partnership and not all of those
represented as partners consented to the
representation, he is liable separately.
EFFECTS OF ACTS OF PARTNER BY ESTOPPEL
The acts of a partner by estoppel have the following
effects:
(1) A person, thus representing himself as a partner
of other persons, becomes an agent of the latter,
in the same manner as though he were a partner
in fact, with respect to persons who rely upon the
representation.
(2) When all the members of the existing partnership
consent to the representation, a partnership act
or obligation results.
(3) In all other cases, only a joint act or obligation
results. [Article 1825]
No real partnership is created by estoppel. It is only
with respect to third persons that partnership by
estoppel is recognized.
ESTABLISHING LIABILITY
The basic elements in connection with establishment
of liability as a partner if based on the doctrine of
estoppel must encompass:
(1) Proof by plaintiff that he was individually aware of
the defendant's representations as to his being a
partner or that such representations were made
by others and not denied or refuted by the
defendant;
(2) Reliance on such representations by the plaintiff;
and
(3) Lack of any denial or refutation of the statements
by the defendant; such denial need not precede
plaintiff's acting therein if the denial was
forthcoming promptly upon hearing of the
representations, and if, by prudence and diligence
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the plaintiff might have learned of the truth or
untruth of the representations.
Persons who knowingly assume to act as a
corporation without authority to do so are liable as
general partners for all debts, liabilities and
damages incurred. [Section 21, Corporation Code] A
partnership de facto is created.
LIABILITY OF INCOMING PARTNER
A person admitted as a partner is liable as the other
partners for obligations subsequent to his admission.
He is also liable for obligations incurred before his
admission, but will be satisfied only out of the
partnership property, unless otherwise stipulated.
(Article 1826)
Ratio:
(1) The new partner partakes of the benefits of the
partnership property and an already established
business.
(2) He has every means of obtaining full knowledge
of the debts of the partnership and remedies that
amply protect his interest [De Leon (2010)].
However, an incoming partner may fully assume the
obligations of a retiring partner.
NOTICE TO OR KNOWLEDGE OF THE
PARTNERSHIP
The following operate as notice to or knowledge of
the partnership:
(1) Notice to any partner of any matter relating to
partnership affairs;
(2) Knowledge of the partner acting in the particular
matter acquired while a partner;
(3) Knowledge of the partner acting in the particular
matter then present to his mind; and
(4) Knowledge of any other partner who reasonably
could and should have communicated it to the
acting partner.
These do not apply in case of fraud on the
partnership committed by or with the consent of the
partner [Article 1821].
PREFERENCE OF PARTNERSHIP CREDITORS
Partnership creditors are preferred over personal
creditors of the partners with respect to partnership
property.
However, personal creditors may ask the attachment
and public sale of the share of the partner debtor in
the partnership assets. [Article 1827]
UP COLLEGE OF LAW AGENCY & PARTNERSHIP
Ratio: The partnership, as a legal entity distinct from
its members, should apply its property to the
payment of its debts in preference to the claim of any
partner or his individual creditors.
Dissolution and winding up
CONCEPTS
Dissolution is the change in the relation of the
partners caused by any partner ceasing to be
associated in the carrying on of the business. It is
different from the winding-up of the business [Article
1828].
Winding up is the actual process of settling the
partnership business or affairs after dissolution. It
involves collection and distribution of partnership
assets, payment of debts, and determination of the
value of the interest of the partners in the
partnership.
Termination is the point in time when all partnership
affairs are completely wound up and finally settled. It
signifies the end of the partnership life.
EFFECT OF DISSOLUTION ON EXISTENCE OF
PARTNERSHIP
Dissolution does not terminate the existence of the
partnership, which continues until the winding up of
partnership affairs is completed. [Article 1829].
The dissolution of a partnership must not be
understood in the absolute and strict sense so that
at the termination of the object for which it was
created the partnership is extinguished, pending the
winding up of some incidents and obligations of the
partnership, but in such case, the partnership will be
reputed as existing until the juridical relations arising
out of the contract are dissolved [Testate Estate of
Mota v. Serra (1926)].
CAUSES OF DISSOLUTION
WITHOUT VIOLATION OF THE AGREEMENT
Without violation of the partnership agreement
between the partners:
(1) By the termination of the definite term or
particular undertaking specified in the
agreement;
(2) By the express will of any partner, who must act
in good faith, when no definite term or particular
is specified;
(3) By the express will of all the partners who have
not assigned their interests or suffered them to
be charged for their separate debts, either before
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or after the termination of any specified term or
particular undertaking;
(4) By the expulsion of any partner from the business
bona fide in accordance with such a power
conferred by the agreement between the
partners.
If, after the expiration of the definite term or
particular undertaking, the partners continue the
partnership without making a new agreement, the
firm becomes a partnership at will. [Article 1785]
Verily, any one of the partners may, at his sole
pleasure, dictate a dissolution of the partnership at
will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution
of the partnership but that it can result in a liability
for damages. [Ortega v. CA (1995)]
Bad faith, in the context here used, is no different
from its normal concept of a conscious and
intentional design to do a wrongful act for a
dishonest purpose or moral obliquity. [Ortega v. CA
(1995)]
IN CONTRAVENTION OF THE AGREEMENT
In contravention of the agreement between the
partners, where the circumstances do not permit a
dissolution under any other provision of this article,
by the express will of any partner at any time.
[E]ven if there is a specified term, one partner can
cause its dissolution by expressly withdrawing even
before the expiration of the period, with or without
justifiable cause. Of course, if the cause is not
justified or no cause was given, the withdrawing
partner is liable for damages but in no case can he
be compelled to remain in the firm. With his
withdrawal, the number of members is decreased,
hence, the dissolution. [Rojas v. Maglana (1990)]
BY OPERATION OF LAW
(1) By any event which makes it unlawful for the
business of the partnership to be carried on or for
the members to carry it on in partnership;
(2) When a specific thing which a partner had
promised to contribute to the partnership,
perishes before the delivery; in any case by the
loss of the thing, when the partner who
contributed it having reserved the ownership
thereof, has only transferred to the partnership
the use or enjoyment of the same; but the
partnership shall not be dissolved by the loss of
the thing when it occurs after the partnership has
acquired the ownership thereof;
(3) By the death of any partner;
UP COLLEGE OF LAW AGENCY & PARTNERSHIP
(4) By the insolvency of any partner or of the
partnership;
(5) By the civil interdiction of any partner;
BY DECREE OF COURT
(1) A partner may apply in court for dissolution when:
(a) A partner has been declared insane in any
judicial proceeding or is shown to be of
unsound mind;
(b) A partner becomes in any other way incapable
of performing his part of the partnership
contract;
(c) A partner has been guilty of such conduct as
tends to affect prejudicially the carrying on of
the business;
(d) A partner willfully or persistently commits a
breach of the partnership agreement, or
otherwise so conducts himself in matters
relating to the partnership business that it is
not reasonably practicable to carry on the
business in partnership with him;
(e) The business of the partnership can only be
carried on at a loss;
(f) Other circumstances render a dissolution
equitable.
(2) A person who acquires the interest of a partner
may likewise apply:
(a) After the termination of the specified term or
particular undertaking;
(b) At any time if the partnership was a
partnership at will when the interest was
assigned or when the charging order was
issued. [Articles 1830 and 1831]
Judicial determination as to dissolution may be
resorted to when the facts which may cause such
dissolution are open to dispute.
OTHER CAUSES
(1) When a new partner is admitted into an existing
partnership;
(2) When any partner retires;
(3) When the other partners assign their rights to the
sole remaining partner;
(4) When all the partners assign their rights in the
partnership property to third persons. [Article
1840]
The statutory enumeration of the causes of
dissolution is exclusive. [De Leon (2010)]
EFFECT OF DISSOLUTION ON AUTHORITY OF
PARTNERS
Upon dissolution, the authority of the partners to
represent the partnership is confined only to acts
necessary to wind up partnership affairs or to
complete transactions begun but not then finished.
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WITH RESPECT TO PARTNERS
The authority of partners to act for the partnership is
terminated, with respect to partners:
(1) When the dissolution is not by the act, insolvency
or death of a partner; or
(2) When the dissolution is by such act, insolvency or
death, when the partner acting for the
partnership has knowledge or notice of the cause.
Otherwise, each co-partner is still liable for his
share in the liability created by the partner acting
for the partnership, as if there was no dissolution.
[Article 1832]
WITH RESPECT TO THIRD PERSONS
With respect to persons not partners:
(1) After dissolution, a partner can bind the
partnership by any act appropriate for winding up
partnership affairs or completing transactions
unfinished at dissolution.
(2) He can also bind it by any transaction which
would bind the partnership as if dissolution had
not taken place, provided the other party to the
transaction:
(a) Had extended credit to the partnership prior
to dissolution and had no knowledge or notice
thereof; or
(b) Had not so extended credit, but had known of
the partnership prior to dissolution, and,
having no knowledge or notice of dissolution,
the fact had not been advertised in a
newspaper of general circulation in the place
(or in each place if more than one) at which
the partnership business was regularly carried
on.
Note the character of notice required. As to persons
who extended credit to the partnership prior to
dissolution, notice must be actual. As to persons who
merely knew of the existence of the partnership,
publication in a newspaper of general circulation in
the place of business of the partnership is sufficient.
LIABILITY OF PARTNERS IN TRANSACTIONS AFTER
DISSOLUTION
General rule: The liability of a partner, in general, is
the same as in ordinary contracts (pro rata and
subsidiary).
Exceptions: In the following cases, however, the
liability shall be satisfied out of the partnership assets
alone:
(1) When the partner had been, prior to the
dissolution, unknown as a partner to the person
with whom the contract is made;
(2) When the partner had been, prior to the
dissolution, so far unknown or inactive in
partnership affairs that the business reputation of
the partnership could not be said to have been in
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any degree due to his connection with it. [Article
1834]
CASES WHERE PARTNERSHIP IS NOT BOUND
Any act of a partner after dissolution in no case binds
the partnership in the following cases:
(1) Where the partnership is dissolved because it is
unlawful to carry on the business, unless the act
is appropriate for winding up partnership affairs;
(2) Where the partner has become insolvent; or
(3) Where the partner has no authority to wind up
partnership affairs, except by a transaction with
one who:
(a) Had extended credit to the partnership prior to
dissolution and had no knowledge or notice of his
want of authority; or
(b) Had not extended credit to the partnership prior
to dissolution, and, having no knowledge or
notice of his want of authority, the fact of his want
of authority has not been advertised.
PARTNERSHIP BY ESTOPPEL AFTER DISSOLUTION
Article 1834 does not affect the liability under Article
1825 of any person who, after dissolution, represents
himself or consents to another representing him as a
partner in a partnership engaged in carrying on
business [Article 1834].
CONTRACTS AFTER DISSOLUTION BY SPECIFIC
CAUSES
General rule: A contract entered into by a partner
acting for the partnership after dissolution by act,
death or insolvency of a partner binds the other
partners.
Exceptions:
(1) The dissolution being by act of any partner, the
partner acting for the partnership had knowledge
of the dissolution; or
(2) The dissolution being by death or insolvency of a
partner, the partner acting for the partnership
had knowledge or notice of the death or
insolvency. [Article 1833]
The general rule assumes that the partner acting for
the partnership has no knowledge or notice of the
specific cause of dissolution.
EFFECT OF DISSOLUTION ON EXISTING LIABILITY
OF PARTNERS
General rule: Dissolution does not of itself discharge
the existing liability of any partner.
Exception: A partner may be so relieved when there is
an agreement to that effect between:
(1) Himself;
(2) The partnership creditor; and
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(3) The person or partnership continuing the
business.
Such agreement may be inferred from the course of
dealing between the creditor having knowledge of
the dissolution and the person or partnership
continuing the business.
In case of dissolution by death, the individual
property of a deceased partner is liable for
obligations of the partnership incurred while he was
a partner, after payment of his separate debts.
[Article 1835]
WINDING UP PARTNERS
WHO MAY WIND UP
The following partners have the right to wind up the
partnership affairs:
(1) Those designated in an agreement;
(2) Those who have not wrongfully dissolved the
partnership; or
(3) The legal representative of the last surviving
partner, who was not insolvent.
However, any partner or his legal representative or
assignee may obtain winding up by the court, upon
cause shown. [Article 1836]
MANNER OF WINDING UP
Thus, winding up of partnership affairs may be done:
(1) Extrajudicially, by the partners themselves; or
(2) Judicially, under the control and direction of the
proper court.
NATURE OF JUDICIAL LIQUIDATION
The action for liquidation of the partnership is
personal. The fact that sale of assets, including real
property, is involved does not change its character,
such sale being merely a necessary incident of the
liquidation of the partnership, which should precede
and/or is part of its process of dissolution.
[Claridades v. Mercader (1966)]
POWERS OF WINDING UP PARTNER
In general, the liquidating partner may perform acts
appropriate for the winding up of partnership affairs.
RIGHTS OF PARTNERS IN CASE OF DISSOLUTION
DISSOLUTION WITHOUT VIOLATION OF THE AGREEMENT
Unless otherwise agreed, when dissolution is caused
in any way, except in contravention of the
partnership agreement, each partner, as against his
co-partners and all partners claiming through them
in respect of their interests in the partnership, may
have the partnership property applied to discharge
the partnership liabilities, and the surplus applied in
cash to the net amount owing to the respective
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partners [referred to as the right under 1st par., Article
1837].
In case of dissolution by bona fide expulsion of a
partner, and the expelled partner is discharged from
all partnership liabilities, either by payment or
agreement to that effect (Article 1835), he shall
receive only the net amount due him from the
partnership.
DISSOLUTION IN CONTRAVENTION OF THE AGREEMENT
Rights of partner who has not caused the dissolution
wrongfully:
(a) To demand the right under 1st par., Article 1837;
(b) To be indemnified for damages for breach of the
agreement against the partner who caused the
dissolution wrongfully;
(c) To continue the business in the same name, by
themselves or jointly with others, during the
agreed term for the partnership and for that
purpose may possess the partnership property
provided they:
(i) Secure the payment by bond approved by the
court; or
(ii) Pay any partner who has caused the
dissolution wrongfully the value of his interest
in the partnership, less any damages
recoverable, and indemnity against all present
or future partnership liabilities.
Rights of partner who has caused the dissolution
wrongfully:
(a) If the business is not continued, all the rights 1st
par., Article 1837, subject to liability for damages;
(b) If the business is continued, the right, as against
his co-partners and all claiming through them, to:
(i) Ascertainment, without considering the value
of the goodwill of the business, and payment to
him in cash the value of his partnership
interest, less any damage, or have the
payment secured by a bond approved by the
court; and
(ii) Be released from all existing liabilities of the
partnership. [Article 1837]
The goodwill of a business may be defined to be the
advantage which it has from its establishment or
from the patronage of its customers, over and above
the mere value of its property and capital. The
goodwill (which includes the firm name) is part of the
partnership assets and may be subject of sale. [De
Leon (2010)]
RIGHTS OF PARTNERS IN CASE OF RESCISSION
A partner, induced by fraud or misrepresentation to
become a partner, may rescind the contract.
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Where a partnership contract is rescinded on such
grounds, the party entitled to rescind, without
prejudice to any other right, is entitled:
(1) After satisfying partnership liabilities to third
persons, to a lien on, or right of retention of, to
the surplus of the partnership property:
(a) For any sum of money paid by him for the
purchase of an interest in the partnership; and
(b) For any capital or advances contributed by
him.
(2) After satisfying partnership liabilities to third
persons, to stand in the place of partnership
creditors for any payments made by him in
respect of the partnership liabilities; and
(3) To be indemnified by the person guilty of the
fraud or making the representation against all
debts and liabilities of the partnership. [Article
1838]
SETTLING OF ACCOUNTS BETWEEN PARTNERS
Subject to any agreement to the contrary, the
following rules shall be observed in settling accounts
between partners after dissolution.
COMPOSITION OF PARTNERSHIP ASSETS
The assets of the partnership are:
(1) The partnership property; and
(2) The contributions of the partners necessary for
the payment of all the liabilities.
In accordance with the subsidiary liability of the
partners, the partnership property shall be applied
first to satisfy any liability of the partnership.
AMOUNT OF CONTRIBUTION FOR LIABILITIES
The rules on distribution of losses [Article 1979] shall
determine the contributions of the partners. As such:
(1) The contribution shall be in conformity with the
agreement.
(2) If only the share in profits has been stipulated, the
contribution shall be in the same proportion.
(3) In the absence of any stipulation, the contribution
shall be in proportion to the capital contribution.
ENFORCEMENT OF CONTRIBUTION
The following persons have the right to enforce the
contributions:
(1) An assignee for the benefit of creditors;
(2) Any person appointed by the court; or
(3) To the extent of the amount which he has paid in
excess of his share of the partnership liability, any
partner or his legal representative.
The individual property of a deceased partner shall
be liable for the contributions.
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ORDER OF APPLICATION OF ASSETS
The partnership liabilities shall rank, in order of
payment, as follows:
(a) Those owing to creditors other than partners;
(b) Those owing to partners other than for capital
and profits;
(c) Those owing to partners in respect of capital;
(d) Those owing to partners in respect of profits.
DOCTRINE OF MARSHALING OF ASSETS
When partnership property and the individual
properties of the partners are in possession of a court
for distribution:
(1) Partnership creditors shall have priority on
partnership property; and
(2) Separate creditors on individual property, saving
the rights of lien of secured creditors.
(3) Anything left from either shall be applied to
satisfy the other.
DISTRIBUTION OF PROPERTY OF INSOLVENT PARTNER
Where a partner has become insolvent or his estate
is insolvent, the claims against his separate property
shall rank in the following order:
(1) Those owing to separate creditors;
(2) Those owing to partnership creditors;
(3) Those owing to partners by way of contribution.
[Article 1839]
RIGHTS OF CREDITORS OF DISSOLVED
PARTNERSHIP
CREDITORS OF DISSOLVED PARTNERSHIP
AS CREDITORS OF NEW PARTNERSHIP
In the following cases, creditors of the dissolved
partnership are also creditors of the person or
partnership continuing the business:
(1) When the business is continued without
liquidation, and the cause of dissolution is:
(a) Admission of a new partner into the existing
partnership;
(b) Retirement or death of any partner, and his
rights to partnership property are assigned to:
(i) Two or more of the partners; or
(ii) One or more of the partners and one or
more third persons.
(c) Retirement of all but one partner, and their
rights to partnership property are assigned to
the remaining partner, who continues the
business, either alone or with others;
(d) Wrongful dissolution by any partner, and the
remaining partners continue the business,
either alone or with others;
(e) Expulsion of a partner, and the remaining
partners continue the business, either alone or
with others.
(2) When the cause of dissolution is the retirement or
death of any partner, and business is continued
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with the consent of the retired partner or the
representative of the deceased partner, without
assignment of their rights to partnership
property.
(3) When the cause of dissolution is the assignment
by all the partners or their representatives of their
rights in partnership property to one or more third
persons who promise to pay the debts and who
continue the business of the partnership.
LIABILITY OF A NEW PARTNER
The liability to the creditors of the dissolved
partnership of a new partner in the partnership
continuing the business shall be satisfied out of the
partnership property alone. However, he may,
through agreement, assume individual liability.
PRIORITY OF CREDITORS OF DISSOLVED PARTNERSHIP
The creditors of dissolved partnership have prior
right to any claim of the retired partner or the
representative of the deceased partner against the
person or partnership continuing the business.
Nothing in this article shall be held to modify any
right of creditors to set aside any assignment on the
ground of fraud.
EFFECT OF CONTINUING USE OF PARTNERSHIP NAME
The use by the person or partnership continuing the
business of the partnership name, or the name of a
deceased partner as part thereof, shall not of itself
make the individual property of the deceased partner
liable for any debts contracted by such person or
partnership. [Article 1840]
RETIRED OR REPRESENTATIVE OF DECEASED
PARTNER
Unless otherwise agreed upon, when any partner
retires or dies, and the business is continued without
any settlement of accounts as between him or his
estate and the person or partnership continuing the
business, he or his legal representative as against
such person or partnership, subject to the prior rights
of creditors of the dissolved partnership:
(1) May have the value of his interest at the date of
dissolution ascertained; and
(2) Shall receive as an ordinary creditor:
(a) An amount equal to the value of his interest in
the dissolved partnership with interest; or
(b) At his option or at the option of his legal
representative, in lieu of interest, the profits
attributable to the use of his right in the property of
the dissolved partnership. [Article 1841]
RIGHT TO AN ACCOUNT
The right to an account of his interest shall accrue to
any partner, or his legal representative, at the date of
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dissolution, in the absence of any agreement to the

contrary, as against: ADVANTAGES OF LIMITED PARTNERSHIP
(1) The winding up partners; (1) For general partners, to secure capital from
(2) The surviving partners; or others while retaining control and supervision for
(3) The person or partnership continuing the the business;
business [Article 1842]. (2) For limited partners, to have a share in the profits
without risk of personal liability.
EXISTENCE OF RIGHT
[T]he right to demand an accounting exists as long GENERAL AND LIMITED PARTNER
as the partnership exists. Prescription begins to run DISTINGUISHED
only upon the dissolution of the partnership when General Partner Limited Partner
the final accounting is done. [Fue Leung v. IAC
(1989)] Extent of liability

NEED FOR LIQUIDATION Personally, but Only to the extent of his

The profits of the business cannot be determined by subsidiarily, liable for capital contributions
taking into account the result of one particular obligations of the
transaction instead of all the transactions had. partnership
Hence, the need for a general liquidation before a
member of a partnership may claim a specific sum as Right to participate in management
his share of the profits. [Sison v. McQuaid (1953)] Unless otherwise agreed No right to participate in
upon, all general partners management
However, no liquidation is necessary when there is have an equal right to
already a settlement or an agreement as to what he manage the partnership
shall receive [De Leon (2010)].
Nature of contribution
Cash, property or industry Cash or property only, not
industry
Limited partnership
Property party in proceedings by or against partnership
DEFINITION
A limited partnership is one formed by two or more Proper party Not proper party, unless:
persons under the provisions of the following article, (1) He is also a general
having as members one or more general partners partner; or
and one or more limited partners. The limited (2) Where the object of
partners as such shall not be bound by the the proceedings is to
obligations of the partnership. [Article 1843] enforce his right against
or liability to the
CHARACTERISTICS partnership
(1) A limited partnership is formed by compliance Name in firm name
with the statutory requirements [Article 1844].
(2) The business is controlled or managed by one or Name may appear in the Name must not appear in
more general partners, who are personally liable firm name the firm name
to creditors [Articles 1848 and 1850].
(3) One or more limited partners contribute to the Prohibition to engage in other business
capital and share in the profits but do not
manage the business and are not personally Prohibited (qualified) Not prohibited
liable for partnership obligations beyond their
capital contributions [Articles 1845, 1848 and Effect of retirement, death, insanity or insolvency
1856].
(4) Obligations or debts are paid out of the Dissolves partnership Does not dissolve; rights
partnership assets and the individual property of transferred to executor or
the general partners. administrator for selling
(5) The limited partners may have their contributions his estate
back subject to conditions prescribed by law Assignability of interest
[Articles 1844 and 1957].

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General Partner Limited Partner A limited partnership is formed if there has been
substantial compliance in good faith with the
Not assignable Assignable requirements.

A partnership cannot become a limited partner. A

general partnership may be changed into a limited
GENERAL AND LIMITED PARTNERSHIP one. A partner in the former general partnership may
DISTINGUISHED become a limited partner in the limited partnership
General Partnership Limited Partnership formed [De Leon (2010)].

Creation PURPOSE OF FILING

The purpose of the requirement of filing the
May be constituted in any Partners must: certificate is to give actual or constructive notice to
form, with exceptions (1) Sign and swear to a potential creditors or persons dealing with the
certificate in compliance partnership to acquaint them with its essential
with Article 1844; and features, including the limited liability of limited
(2) File the certificate for partners.
record in the SEC
NO SUBSTANTIAL COMPLIANCE
Composition When there is failure to substantially comply with the
Only general partners One or more general, and requirements:
one or more limited (1) In relation to third persons, the partnership is
partners general, unless they recognized that the firm as a
limited partnership;
Firm name (2) As between the partners, the partnership remains
limited, since they are bound by their agreement
Must contain the word Must include the word [De Leon (2010)].
"Company" (SEC Memo "Limited" (SEC Memo Circ
Circ No. 14-00), except for No. 14-00) FIRM NAME
professional partnerships The surname of a limited partner shall not appear in
the partnership name unless:
May or may not include Must not include name of (1) It is also the surname of a general partner; or
the name of one or more limited partners, unless: (2) Prior to the time when the limited partner
of the partners (1) It is also the surname became such, the business had been carried on
of a general partner; or under a name in which his surname appeared.
(2) Prior to the time when
the limited partner A limited partner whose surname appears in a
became such, the partnership name contrary to this prohibition is liable
business has been carried as a general partner to partnership creditors who
on under a name in which extend credit without actual knowledge that he is not
his surname appeared. a general partner.
Rules governing dissolution and winding up FALSE STATEMENT IN THE CERTIFICATE
Articles 1828-1842 Articles 1860-1863 If the certificate contains a false statement, one who
suffers loss by reliance thereon may hold liable any
party to the certificate who knew the statement to be
false:
FORMATION OF LIMITED PARTNERSHIP (1) At the time he signed the certificate; or
Two or more persons desiring to form a limited (2) Subsequently, but within a sufficient time before
partnership shall: the statement was relied upon to enable him to
(1) Sign and swear to a certificate stating the items cancel or amend the certificate, or to file a
in Article 1844; and petition for its cancellation or amendment.
(2) File for record the certificate in the Office of the
Securities and Exchange Commission. Requisites:
(1) The partner knew the statement to be false at the
time he signed the certificate, or subsequently,
but having sufficient time to cancel or amend it,

PAGE 256
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or file a petition for its cancellation or
amendment, and he failed to do so;
(2) The person seeking to enforce liability has relied
upon the false statement in transacting business
with the partnership; and
(3) The person suffered loss as a result of reliance
upon such false statement.
ADMISSION OF ADDITIONAL LIMITED PARTNERS
After the formation of a limited partnership,
additional limited partners may be admitted upon
filing an amendment to the original certificate.
GENERAL AND LIMITED PARTNER AT THE SAME TIME
A person may be a general and a limited partner in
the same partnership at the same time, provided
that this fact shall be stated in the certificate.
A person who is a general, and also at the same time
a limited partner, shall have all the rights and
powers and be subject to all the restrictions of a
general partner; except that, in respect to his
contribution, he shall have the rights against the
other members which he would have had if he were
not also a general partner. [Article 1853]
MANAGEMENT OF LIMITED PARTNERSHIP
A limited partner shall not become liable as a
general partner unless, in addition to the exercise of
his rights and powers as a limited partner, he takes
part in the control of the business [Article 1848].
MANAGEMENT BY GENERAL PARTNERS
Only the general partners have the right to manage
the partnership. The limited partners are not so
entitled.
LIABILITY OF LIMITED PARTNER FOR PARTICIPATING IN
CONTROL
A limited partner is liable as a general partner (i.e.,
subsidiarily liable) for the obligations of the
partnership if he takes part in the control of the
business. The control contemplated is active
participation in the management of the business. It
does not contemplate mere giving of advice to
general partners which may be followed or not.
The abstinence of the limited partner from
participation in the transaction of the business of the
firm is essential to his exemption from personal
liability. [De Leon (2010)].
POWERS OF GENERAL PARTNER
General rule: A general partner shall have the rights
and powers and be subject to all restrictions and
liabilities of a partner in a partnership without
limited partners.
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Thus, a general partner is vested with the entire
control of the business. It is in consideration of his
unlimited personal liability for the obligation of the
partnership that he is granted the general authority
to manage.
Qualification: Written consent or ratification of the
specific act by all the limited partners is necessary to
authorize the general partners to:
(1) Do any act in contravention of the certificate;
(2) Do any act which would make it impossible to
carry on the ordinary business of the partnership;
(3) Confess a judgment against the partnership;
(4) Possess partnership property, or assign their
rights in specific property, for other than a
partnership purpose;
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner, unless the
right to do so is given in the certificate;
(7) Continue the business with partnership property
on the death, retirement, insanity, civil
interdiction or insolvency of a general partner,
unless the right so to do is given in the certificate.
[Article 1851]
The acts enumerated are acts of strict dominion.
OBLIGATIONS OF A LIMITED PARTNER
OBLIGATIONS RELATED TO CONTRIBUTION
The contributions of a limited partner may be cash or
property, but not services [Article 1845].
A limited partner is liable for partnership obligations
when he contributes services instead of only money
or property to the partnership [De Leon (2010)].
A limited partner is liable to the partnership:
(1) For the difference between his actual contribution
and that stated in the certificate as having been
made;
(2) For any unpaid contribution which he agreed in
the certificate to make in the future at the time
and on the conditions stated in the certificate. [1st
par., Article 1858]
He holds as trustee for the partnership:
(1) Specific property stated in the certificate as
contributed by him, but which was not
contributed or which has been wrongfully
returned; and
(2) Money or other property wrongfully paid or
conveyed to him on account of his contribution.
[2nd par., Article 1858]
The liabilities under Article 1858 can be waived or
compromised only by the consent of all members.
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Such waiver or compromise, however, shall not affect
the right to enforce said liabilities of a creditor:
(1) Who extended credit, or
(2) Whose claim arose, after the filing or before a
cancellation or amendment of the certificate, to
enforce such liabilities.
Even after a limited partner has rightfully received
the return in whole or in part of his capital
contribution, he is still liable to the partnership for
any sum, not in excess of such return with interest,
necessary to discharge its liabilities to all creditors:
(1) Who extended credit, or
(2) Whose claims arose, before such return. [Article
1858]
A person who has contributed capital to a
partnership, erroneously believing that he has
become a limited partner, but his name appears in
the certificate as a general partner or he is not
designated as a limited partner, is not personally
liable as a general partner by reason of his exercise
of the rights of a limited partner, provided:
(1) On ascertaining the mistake, he promptly
renounces his interest in the profits of the
business or other compensation by way of income
[Article 1852];
(2) He does not participate in the management of
the business [Article 1848]; and
(3) His surname does not appear in the partnership
name [Article 1846].
LIABILITY TO PARTNERSHIP CREDITORS
General rule: A limited partner is not liable as a
general partner. His liability is limited to the extent of
his contributions.
Exceptions: The limited partner is liable as a general
partner when:
(1) His surname appears in the partnership name,
with certain exceptions.
(2) He takes part in the control of the business.
LIABILITY TO SEPARATE CREDITORS
On due application to a court of competent
jurisdiction by any separate creditor of a limited
partner, the court may:
(1) Charge his interest with payment of the
unsatisfied amount of such claim;
(2) Appoint a receiver; and
(3) Make all other orders, directions and inquiries
which the circumstances of the case may require.
The interest so charged may be redeemed with the
separate property of any general partner, but may
not be redeemed with partnership property. [Article
1862]
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Note: In a general partnership, the interest may be
redeemed with partnership property with the
consent of all the partners whose interests are not
charged [Article 1814].
RIGHTS OF A LIMITED PARTNER
RIGHTS OF LIMITED PARTNER, IN GENERAL
A limited partner shall have the same rights as a
general partner to:
(1) Require that the partnership books be kept at the
principal place of business of the partnership;
(2) To inspect and copy any of them at a reasonable
hour;
(3) To demand true and full information of all things
affecting the partnership;
(4) To demand a formal account of partnership
affairs whenever circumstances render it just and
reasonable; and
(5) To ask for dissolution and winding up by decree
of court;
(6) To receive a share of the profits or other
compensation by way of income; and
(7) To receive the return of his contribution provided
the partnership assets are in excess of all its
liabilities.
RIGHT TO TRANSACT BUSINESS WITH PARTNERSHIP
A limited partner may:
(1) Loan money to the partnership;
(2) Transact other business with the partnership; and
(3) Receive a pro rata share of the partnership assets
with general creditors if he is not also a general
partner.
Limitations: A limited partner, with respect to his
transactions with the partnership, cannot:
(1) Receive or hold as collateral security any
partnership property; or
(2) Receive any payment, conveyance, or release
from liability if it will prejudice the right of third
persons.
Violation of the prohibition is considered a fraud on
the creditors of the partnership. [Article 1854]
RIGHT TO SHARE IN PROFITS
A limited partner may receive from the partnership
the share of the profits or the compensation by way
of income stipulated for in the certificate.
This right is subject to the condition that partnership
assets will still be in excess of partnership liabilities
after such payment.
Ratio: Otherwise, he will receive a share to the
prejudice of third-party creditors.
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In determining the partnership liabilities, the
liabilities to the limited partners (for their
contributions) and to general partners (whether for
contributions or not) are not included.
RIGHT TO RETURN OF CONTRIBUTION
A limited partner may have his contributions
withdrawn or reduced when:
(1) All the liabilities of the partnership, except
liabilities to general partners and to limited
partners on account of their contributions, have
been paid or there remains property of the
partnership sufficient to pay them;
(2) The consent of all members is had, unless the
return may be demanded as a matter of right;
and
(3) The certificate is cancelled or so amended as to
set forth the withdrawal or reduction.
The return of his contributions may be demanded, as
a matter of right (even when not all the other
partners consent), the return of his contribution
when (1) and (2) above are complied with:
(1) On the dissolution of the partnership;
(2) Upon the arrival of the date specified in the
certificate for the return; or
(3) After the expiration of a 6-month notice in writing
given by him to the other partners, if no time is
fixed in the certificate for:
(a) the return of the contribution; or
(b) the dissolution of the partnership.
General rule: A limited partner, irrespective of the
nature of his contribution has only the right to
demand and receive cash in return for his
contribution.
Exceptions: He may receive his contribution in a form
other than cash when:
(1) There is a statement in the certificate to the
contrary; or
(2) All the members of the partnership consent.
PREFERENCE OF LIMITED PARTNERS
General rule: The limited partners stand on equal
footing as to their:
(1) Compensation by way of income;
(2) Return of contribution; or
(3) Any other matter.
Exception: By an agreement of all the partners
(general and limited) in the certificate, priority or
preference may be given to some limited partners
over others with respect to the matters enumerated.
[Article 1855]
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BAR OPERATIONS COMMISSION
RIGHT TO ASSIGN INTEREST
The interest of a limited partner is assignable. The
assignee may become:
(1) A substituted limited partner; or
(2) A mere assignee.
A substituted limited partner is a person admitted to
all the rights of a limited partner who has died or has
assigned his interest in a partnership. He has all the
rights and powers, and is subject to all the
restrictions and liabilities of his assignor, except
those liabilities which:
(1) The assignee was ignorant of; and
(2) Cannot be ascertained from the certificate.
An assignee is only entitled to receive the share of the
profits or other compensation by way of income, or
the return of contribution, to which the assignor
would otherwise be entitled. He has no right:
(1) To require any information or account of the
partnership transactions;
(2) To inspect the partnership books.
An assignee has the right to become a substituted
limited partner if:
(1) All the partners consent thereto;
(2) The assignor, being empowered to do so by the
certificate, gives him that right.
An assignee becomes a substituted limited partner
when the certificate is appropriately amended.
[Article 1859]
RIGHT TO ASK FOR DISSOLUTION
A limited partner may have the partnership dissolved
and its affairs wound up:
(1) When his demand for the return of his
contribution is denied although he has a right to
such return;
(2) When he has such right, but his contribution is
not paid because the partnership property is
insufficient to pay its liabilities. [Article 1857]
CAUSES OF DISSOLUTION OF LIMITED
PARTNERSHIP
A limited partnership is dissolved in much the same
way and causes as an ordinary partnership [De Leon
(2010)].
General rule: The retirement, death, insolvency,
insanity or civil interdiction of a general partner
dissolves the partnership.
Exception: It is not so dissolved when the business is
continued by the remaining general partners:
(1) Under a right to do so stated in the certificate; or
(2) With the consent of all members. [Article 1860]
UP COLLEGE OF LAW
On the death of a limited partner, his executor or
administrator shall have:
(1) All the rights of a limited partner for the purpose
of settling his estate; and
(2) The power to constitute an assignee as a
substituted limited partner, if the deceased was
so empowered in the certificate.
The estate of a deceased limited partner shall be
liable for all his liabilities as a limited partner. [Article
1861]
SETTLEMENT OF ACCOUNTS
ORDER OF PAYMENT
In settling accounts after dissolution, the liabilities of
the partnership shall be entitled to payment in the
following order:
(1) Those to creditors, including limited partners
except those on account of their contributions, in
the order of priority as provided by law;
(2) Those to limited partners in respect to their share
of the profits and other compensation by way of
income in their contributions;
(3) Those to limited partners in respect to the capital
of their contributions;
(4) Those to general partners other than for capital
and profits;
(5) Those to general partners in respect to profits;
(6) Those to general partners in respect to capital.
Note: In settling accounts of a general partnership,
those owing to partners in respect to capital enjoy
preference over those in respect to profits.
SHARE IN THE PARTNERSHIP ASSETS
The share of limited partners in respect to their
claims for capital, profits, or for compensation by way
of income, is in proportion of their contribution,
unless:
(1) There is a statement in the certificate as to their
share in the profits; or
(2) There is a subsequent agreement fixing their
share. [Article 1863]
AMENDMENT OR CANCELLATION OF
CERTIFICATE
WHEN CERTIFICATE IS CANCELLED
The certificate shall be cancelled when:
(1) The partnership is dissolved; or
(2) All limited partners cease to be such.
WHEN CERTIFICATE IS AMENDED
A certificate shall be amended when:
(1) There is a change in the name of the partnership
or in the amount or character of the contribution
of any limited partner;
(2) A person is substituted as a limited partner;
AGENCY & PARTNERSHIP BAR OPERATIONS COMMISSION
(3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;
(5) A general partner retires, dies, becomes insolvent
or insane, or is sentenced to civil interdiction and
the business is continued;
(6) There is a change in the character of the business
of the partnership;
(7) There is a false or erroneous statement in the
certificate;
(8) There is a change in the time as stated in the
certificate for the dissolution of the partnership or
for the return of a contribution;
(9) A time is fixed for the dissolution of the
partnership, or the return of a contribution, no
time having been specified in the certificate; or
(10) The members desire to make a change in any
other statement in the certificate in order that it
shall accurately represent the agreement among
them.
REQUIREMENTS FOR AMENDMENT OR CANCELLATION
To amend or cancel a certificate:
(1) The amendment or cancellation must be in
writing;
(2) It must be signed and sworn to by all the
members including the new members, and the
assigning limited partner in case of substitution
or addition of a limited or general partner; and
(3) The writing to amend (with the certificate, as
amended) or to cancel must be filed for record in
the SEC.
From the moment the amended certificate/writing or
a certified copy of a court order granting the petition
for amendment has been filed, such amended
certificate shall thereafter be the certificate of
partnership. [Article 1865]
Contract of agency
DEFINITION
By the contract of agency, a person binds himself to
render some service or to do something in
representation or on behalf of another, with the
consent or authority of the latter [Article 1868].
Agency may refer to both a contract, as defined in
the provision, and the representative relation
created.
As a relation, agency is fiduciary (based on trust and
confidence), which implies a power in an agent to
contract with a third person on behalf of a principal.
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